HSBC SAID a $1bn increase in its wages bill in Brazil, China and other emerging markets was the price of avoiding the stagnant growth that has dogged some rival lenders more dependent on Europe.

Posting a pretax profit just shy of $22bn, the largest in 2011 by a western bank, HSBC said yesterday it was confident growth in Asia, Latin America and the Middle East would continue to offset sluggish conditions in Europe.

However, with costs rising 10pc in 2011, due partly to surging wages in emerging markets, chief executive Stuart Gulliver said it would be a challenge to meet the bank's 2013 target for reducing costs as a proportion of income.

Banks across Europe have been posting hefty losses as the eurozone sovereign debt crisis has hit their trading profits, and as they strive to meet tough new rules aimed at preventing a repeat of the 2007-09 banking crisis.

HSBC, Europe's biggest bank, which makes over three-quarters of its profits outside Europe and North America, has been relatively unscathed thanks to its strength in faster-growing emerging markets.

It said it expected that trend to continue, despite fears some of these economies were overheating and could see an abrupt slowdown.

"We remain comfortable with the (outlook in) emerging markets and are confident that GDP growth in emerging markets will be positive and China will have a soft landing," Mr Gulliver said.

In contrast, the eurozone economy would flatline this year, with "marked recessions" in some southern countries, he added.

HSBC, with 89 million customers in 85 countries, said pretax profit rose 15pc to $21.9bn in 2011 compared with a forecast for $22.2bn in a Reuters poll.

The figure fell short of the group's record profit of $24.2bn in 2007, but beat all other western banks that have reported so far for last year, including US rival JP Morgan, which made $19bn.

The world's most profitable banks in recent years have been Chinese groups ICBC, which made a 215bn yuan ($34.2bn) pretax profit in 2010, and China Construction Bank, which made 175bn yuan ($27.8bn).

HSBC's profit was boosted by a $3.9bn accounting gain on the value of its debt. Stripping that out, underlying pretax profit fell 6pc to $17.7bn.

HSBC shares in London were down 4pc at 551.9p, lagging a 1pc decline in the UK's benchmark FTSE 100 index. The shares have beaten the STOXX Europe 600 banking index by 15pc over the past year.

"There's a slight miss (on profits) and the market isn't that impressed with the message on costs," said Alex Potter, analyst at Berenberg Bank.

HSBC said it paid out $4.2bn in bonuses, down 2pc on 2010. Banks are coming under intense pressure from politicians and the public to rein in pay awards because of the role of the sector in the world's economic problems.

Mr Gulliver was paid £8m last year -- including a £2.2m bonus -- down from £8.4m in 2010, when he ran HSBC's investment bank.

Another banker, who HSBC declined to name, netted £7m, while 192 employees were paid over £1m each, including 64 in Britain.

The cost-to-income ratio deteriorated to 61pc in 2011 from 55.6pc the year before for its underlying business.